Filing tax returns gets the better of salaried individuals as this class is among the top taxpayers in a country like India. When it is time to file returns, one may worry about not being able to save enough on taxes. However, there are provisions made by the Income Tax Department and the Government of India to ensure that the salaried class is, to some extent, relieved from the burden of paying hefty taxes. This relief comes in the form of tax-saving investments, which can be the ideal solution if you want to lower the amount of tax you pay.
How to save tax on salary?
While the burden of tax payments can be quite heavy on salaried employees, they can look for tax-saving options available in the market. To save on tax, salaried employees can invest in several instruments to avail exemptions and deductions, which will ease the burden.
One way you can save your tax outflow is by choosing tax-saving investment options. However, to save tax through these options, you must consider the points listed below:
- Understand your payslip: Before looking for tax-saving options, you must understand your payslip and consider the different components. Consider factors like house rent allowance, travel allowance, TDS (Tax Deducted at Source), etc. By understanding these components of your salary, you can distribute them to help you avail yourself the highest amount of exemptions from the paycheck.
- Limit of ₹1.5 lakh under Section 80C of the Income Tax Act: With the 80C Section of the Income Tax Act, you can opt for a wide variety of tax deductions that will lower your income tax liability. There are a lot of investments under this section to get tax benefits, some of them are:
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- Life insurance: As an individual or a HUF (Hindu Undivided Family), you can claim tax deductions on the premiums paid towards life insurance policies. If you’re looking for a suitable tax saver plan, you can avail a tax deduction of up to ₹1,50,000 under Section 80C for traditional life insurance plans, savings-cum-insurance plans, Unit Linked Insurance Plans (ULIPs), and so on. If you are not sure of the plans that would enable you to avail of tax deductions, you can contact your insurance provider for guidance on the same.
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- Tax saver FDs: Five years fixed deposits that banks and post offices offer are tax-deductible. The interest earned on the FD is taxable.
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- ELSS funds: Equity Linked Savings Scheme (ELSS) is a type of mutual fund that invests 80% of the funds in equity funds with a lock-in period of three years. This fund will provide an individual with exceptionally high returns.
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- Public Provident Funds: It is a government-established scheme that has a total lock-in period of 15 years. The interest rates are subject to change every quarter.
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- Health insurance premium: Under Section 80D, you can get an insurance tax benefit of up to ₹25,000 on the premiums paid towards your health insurance premium. The limit goes up to ₹50,000 if you’re a senior citizen. You can avail additional tax benefit of up to ₹50,000 for premium payments made towards a senior citizen policy for your parents.
- Savings account: Savings accounts are excellent ways to save on tax payments. Under Section 80TTA, the interests earned on the savings accounts are tax-deductible for up to ₹10,000. The limit will go up to ₹50,000 for a senior citizen under Section 80TTB.
- Deduction on home loan interest: As per Section 24 of the ITA (Income Tax Act), if you have taken a home loan, you are eligible to get a deduction on the interests of the repayment amount. You will have the option of claiming a deduction of up to ₹2 lakh per year.
- Do not delay tax planning: An essential step to tax saving is not to delay tax planning. If you are a salaried individual, investments in tax-saving instruments are an integral part of your financial planning. A carefully planned investment portfolio which factors in tax exemption will help individuals earn high returns and at the same time save on the amount they pay in tax.
Summing Up
Salaried individuals are among the top tax-paying individuals of the country. If you’re a salaried individual and are wondering how to save tax in India, then there are specific methods that you can follow. Also, by availing tax benefits, you can save an amount that can act as an emergency fund in times of need.
